How To Get Out of an Upside-Down Car Loan 

As Car Enthusiasts, it is inevitable for all of us to make that one car purchase in our life that we live to regret and that is a fact. For most of us, that would more often than not be a scrapped rolling chassis that we found at our local junkyard with high ambitions of making it our baby project and restoring it but life turned out to be much more than just a grand cakewalk talking all those dreams down the drain with a mark of liability on your bank account. This scenario does sound bad since you do have hard-earned money invested in this dream which isn’t going to reach fruition and you do have some significant cash going down the drain but is it really as bad as being upside down on your car loan? YIKES!

Yes, it might not be as surprising but a significant number of people do tend to go underwater on their loan and it isn’t mostly Car Enthusiasts. One has to realize that in the modern era of having the best of everything sometimes has some dire consequences and being in a loan rut isn’t something that we would wish on anyone. Getting a new set of wheels is one of the biggest purchases an average Joe makes in their lifetime and there are times when the heart blurs the mind’s vision plain and simple. If you do not know what going “upside-down” or “underwater” on your auto loan means, it is a simple term that signifies that at the present moment your vehicle’s market value is lesser when compared to your outstanding auto loan payment. For example, you owe about $25,000 on your 2021 Nissan Maxima that you financed but need to get rid of now due to a financial crisis, your Sportage right now has a market value of around $22,500 which means that you have $2500 in negative equity that would still be hanging on your head even after selling your prized possession. This is an extremely worrisome situation for many and unfortunately, there isn’t a simple way out.

Although eating the loss by selling the car or repaying the loan while potentially losing equity is the two most common ways out of this rut, there might be a couple of other options for people to explore. The following 4 steps just might help you save your sinking boat.

How Bad Is It?

• Get out your calculator and punch in your remaining loan amount on your vehicle and subtract the estimated value of your vehicle/the best offer you are getting for your car and you should have the figure that is your negative equity.
• If you need help finding out your vehicle’s current worth, Edmunds and Kelley Blue Book should be your go-to while making some cold calls to local dealers would be a good overall plan of action.
• Once you have figured out what your negative equity is, you need to work your books and see if you can simply pay down your negative equity in a lump sum without taking on more debt or hurting the foundation of your other assets. We do understand that this is extremely difficult in most circumstances, but this is the best option to reach peace and if you can eat up your negative equity, we strongly suggest that you do.

Knock on your lender’s door.

• If paying down your negative equity is not a possibility, then we would suggest you be upfront with your lender and talk about the options they might have for you.
• Even if there is a possibility that they might just wash their hands and walk away, it is always wise to ask.
• A common option suggested by some lenders is to increase your monthly payments by a decent number which enables you to get out of the loan faster. This approach gives you a chance of outpacing your vehicle’s future depreciation, but it does mean increased monthly payments and keeping the vehicle which is seldom a possibility.

Round the wheel we go.

• If you have a decent credit score, then refinancing at a lower interest rate might be an option to think about.
• Refinancing a loan is a slippery slope and you have to be extremely vigilant of your loan terms since the lower monthly payments might be tempting but extending the loan duration would definitely put on some more financial stress later down the road.
• You also would have to be smarter than before since vehicles depreciate rather swiftly, losing up to 60% in the first 5 years, so it is always advisable to keep your loan term short enough to avoid going underwater again.

Adios Amigo.

• If all of this confusion is arising simply because you are planning a newer vehicle it shouldn’t be any more obvious that keeping your current vehicle would be the best plan of action. If you can comfortably pay your current loan amount while keeping your current set of wheels it should be your only consideration.
• If it is a financial crisis though, then selling your car would only aid in covering the remainder of the loan which should be a relief.
• We need to realize that the average market value is what the name suggests it is-AVERAGE, it isn’t a price set in stone and you could always make your vehicle drool-worthy enough so that a potential buyer is willing to pay a premium that has the potential to even out the negative equity in some cases.
• Put in a couple of hundreds to raise your vehicle’s value by a couple of thousands- Get it detailed, get the mechanical issues sorted, make it presentable or at the very least wash and wax.
• One also has to realize that Trade-In might be the most convenient way to get rid of your car, but a private listing gets you a much better price. There is a significant difference between what a dealership and what a private buyer would offer for your vehicle which should be taken into account.

Being in a financial crisis is a stress of its own and the added bulk of an underwater car loan can have extremely detrimental results to your sanity. One should always realize that there is always a way out no matter how tough. The above steps should serve as a preliminary guide to your foreseeable options and put it into perspective that a quick solution might not be the best one.  Whatever your final decision may be, we sure do hope that your tiresome efforts do get you out of this tricky situation.